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Internal Control

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Justification for an Internal Control System

Justification for an Internal Control System Internal controls are key elements toward risk reduction for any organization. Although additional controls (insurance and portfolio approach) are currently in place, this paper will focus on the internal system, other approaches to risk management, and how internal controls will be beneficial for the organization overall. While current approaches also assume certain potential risk protection, internal controls can minimize financial loss by widening the scope of understanding amongst mid to senior level leadership. Within this paper, another risk protection technique (insurance) will also be discussed and compared to the proposed internal controls to measure the effectiveness of both. Internal control systems are good to use along with system wide interrelated approaches to managing risk. The more management involvement in the process the better and creates a since of understanding in the organization. Some senior level leaders believe that insurance creates the only safety net should they be in a potential loss situation. Although insurance does play a major role, prevention is the goal. Preventing a potential risk puts those processes in place that regularly identifies any deficiencies in the policy that can be corrected before any material misstatements occur to financial reporting. Portfolio and Other Approaches Companies often times use this approach to manage risk and other enterprise risk management technics (ERM). The portfolio approach is a “top down” ideal that relies on other techniques created at the senior level and never develops any preventive risk approaches for the company. Decentralized organizations have more risk involved as they are the day to day keepers and protectors. Portfolio approaches to managing risk is also a...

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